A well trailed increase to corporation tax dominated the headlines in the wake of the budget.
However, businesses will benefit from a massive tax giveaway before any tax rises take effect.
The UK has long been a frontrunner in the corporation tax “race to the bottom”. At first glance the promised hike in the rate from 19% to 25% looks like a major win for tax justice. We’ve long argued that an ultra-low corporation tax rate does little to stimulate investment.
But the rise in 2023 comes just ahead of a planned 2024 general election. The pressure on the Chancellor to cave and drop the tax rise will be immense.
Big business was also given a whopping £25 billion tax giveaway in the shape of a “super-deduction” for investment. The Chancellor described it as the “biggest business tax cut in history”.
It wasn’t the only cut announced. For all the Prime Minister’s promises that there would be no return to austerity, the budget included £15 billion a year of cuts to public services.
Meanwhile “a tsunami of jobs” was the spin promised to Teeside as one of eight locations awarded freeport status. Freeports are low tax, low regulation zones meant to encourage investment. But as we have argued before, it’s hard to see how freeports will amount to more than glorified business parks with a smattering of low skilled, poorly paid jobs.
There was nothing on capital gains tax or other potentially progressive changes to the way we tax wealth. All eyes will now focus on the Treasury’s planned “Tax Day” due to take place on the 23 March, where it’s possible more may emerge.
It’s important to claim victory when it happens. The corporation tax rise ends a decade of ideology that the only way for business tax is down. But we still have a long way to go before we see true tax justice.
A small club of ultra wealthy Londoners scooped a tax break equal to every northerner in the country combined according to figures unearthed by Tax Justice UK.
The finding emerged ahead of next week’s budget when the Chancellor is rumoured to be considering equalising capital gains - the profits made when selling shares, investment property and other assets - with income tax. The policy could raise £14bn a year according to government estimates.
Our research shows that by focusing tax rises on wealthy taxpayers in the south, such a move would support the government’s levelling up agenda.
Based on HMRC statistics, we found that people who live in London and the southeast of England receive half of all capital gains, despite only making up a quarter of the population. In contrast, people in the north of England and the midlands receive just a quarter of capital gains despite making up 40% of the UK’s population.
For the very highest earners, the figures are even more skewed. The 1,586 individuals in London with capital gains of over £1.6 million a year take home more in gains (£9bn) than all individuals in the north of England (£8bn of gains). Gains of £1.6 million a year million puts you in the top 0.01% of earners.
Recent research from LSE and the University of Warwick found that high earners can use capital gains to slash their total tax bills. For example, the average tax rate of someone netting £10m is just 21%. Capital gains are also highly concentrated, with 62 percent of capital gains going to just 9,000 people with gains of over £1m.
A review from the Office of Tax Simplification commissioned by the Chancellor suggested taxing capital gains at the same level as income tax and removing loopholes such as wiping out gains on death. Rumours in advance of the March budget suggest that Rishi Sunak is seriously looking at increasing capital gains tax.
Our breakdown of how CGT is distributed regionally can be viewed here. It is based on publicly available HMRC statistics and a freedom of information response to Tax Justice UK.
We would like to thank Dr Andy Summers (LSE) and Dr Arun Advani (University of Warwick) for their support with this research. All errors remain our own.
This article by our Head of Advocacy, Tom Peters, first appeared in Labourlist
The government has received up to 40 bids for ‘free port’ status from across the UK, including several from Labour authorities. The ten successful bidders will be offered a mix of deregulation, cuts to tariffs, land and business taxes and employee National Insurance by the Chancellor Rishi Sunak.
After a decade of unprecedented budget cuts, local Labour leaders may feel tempted by the promise that jobs and investment will follow these tax breaks. But they should be cautious. Free port status is a Faustian pact, signing away sustainable local development for a reheated Thatcherite race to the bottom.
The Chancellor’s promise that free ports will deliver 86,000 new jobs doesn’t withstand scrutiny. There is little evidence that similar areas in other countries have created new activity. The Organisation for Economic Co-operation and Development believes most jobs are simply relocated from other places, as businesses move to benefit from the tax cut. The reduced employer responsibilities are also of concern; the TUC has labelled free ports a “Trojan horse” that could water down workers’ rights.
The projected costs of tax cuts in Teeside alone could be £400m over 25 years, but the UK Trade Policy Observatory believes the economic benefits to the UK will be “negligible at best“. Perhaps that’s why David Cameron scrapped eight free ports in the UK back in 2012, replacing them with ‘enterprise zones’. Even the zones delivered only a quarter of the promised jobs and, according to the Centre for Cities, these were overwhelmingly low-skilled and poorly paid.
The dubious benefits come with high risks that ‘sleaze ports’ will become entangled with money laundering and criminality. The OECD found “clear evidence that free ports are being used by criminals to traffic fake goods”. The EU parliament’s study of a similar model in Luxembourg found it to be “high risk in relation to money laundering”. RUSI has called on the UK government to “assess existing criminal risks in the geographical locations where free ports will be established”.
The core justification for introducing low tax zones is weak. There’s limited evidence that tax levels are holding back economic growth. At 19%, the UK corporate tax rate is one of the lowest in the developed world. The Treasury recently conceded that the last decade of business tax cuts has done little to stimulate inward investment. Meanwhile, the free port model risks spilling into the rest of the economy, stoking competition from other areas for similar tax cut treatment. This is not a path to the healthy and inclusive economy that Labour politicians should wish to see.
Bridget Phillipson, the Shadow Chief Secretary to the Treasury, has rightly written that free ports are no “silver bullet” for the economy. But Labour should go further: at both a local and national level, leaders should refuse to introduce mini tax-havens on their doorsteps.
There are alternatives. The government should keep its promises to develop an industrial strategy, invest in infrastructure and support a green transition. The sums spent in tax cuts could be repurposed as direct capital investment in port infrastructure. The government-funded ORE Catapult Centre believes that ports are essential building blocks for the expansion of offshore wind. Additional investment would develop stronger domestic supply chains for clean energy, driving our ambitions for net-zero carbon and creating skilled, green jobs locally.
Free ports offer the promise of a buccaneering post-Brexit Britain, trading its way to prosperity. But in reality they are glorified business parks, offering bad jobs and undermining our tax system. Believing in the false promises of free ports will leave us all worse off.
This article by our Executive Director, Robert Palmer, first appeared in Tribune magazine.
Last year saw middle class Brits squirrelling away cash at record levels with savings piling up in the bank accounts of the so-called “sourdough savers.”
If like me, you have spent the majority of the pandemic working from home, not commuting, unable to go out and not travelling, then it’s likely that the state of your household finances are a rare chink of light in hard times. For many, 2020 was a bumper year financially, with the Bank of England stating that extra savings were concentrated in the wealthiest households.
For others the financial impact of covid has been bleak.
Despite various government support schemes, for example furlough, nine million people have had to take a loan out because of the pandemic. The Resolution Foundation reported serious financial stress, with 54% of families on the lowest incomes being forced to borrow to pay for food and housing.
This deep division is not new. Last week it emerged that the UK was already at a decade long high in terms of income inequality.
The incomes of the poorest fifth of households were in freefall before covid, down 4.8% since 2010. For “just about managing families” on average earnings, wages grew by an average of just 0.8% between 2011 and Spring 2020.
Before the pandemic a household on the average wage would have had to save every penny, for 96 years, to reach the wealth of the top 10%. The economic fallout from the pandemic will doubtless have delivered a hammer blow to those, admittedly abstract, prospects.
Those who entered the crisis struggling have been hit the hardest, while the bank balances of many wealthier families have done well.
An economy that fails to guarantee good health and prosperity for the most vulnerable - whether in the midst of a global pandemic or not - is an economy that is fast running out of road.
The big political question this year will be how to recover from the pandemic in a way that’s fair and sustainable. The Shadow Chancellor of the Exchequer, Anneliese Dodds, spoke recently of her fear that a form of austerity and tax rises will be imposed in the next 12 to 18 months to give the government space to offer fresh tax cuts before the next general election.
With tax rises on the cards, politicians are already asking “who will pay?”
For me, it’s clear that the answer has to be profitable companies and those with substantial wealth. Our tax system currently focuses too much on taxing consumer spending and income from work.
There’s growing economic consensus that we need to do a much better job of ending the unfair advantages for the wealthiest in society. These include reforming capital gains tax so that income from wealth is taxed at the same as income from work. This would end the spectacle of hedge fund managers getting away with paying lower tax rates than nurses.
Other ideas include reducing the cushy pensions tax relief that higher earners get compared to lower earners, reforming our wildly dated and unfair council tax system and raising corporation tax.
All these ideas were backed by a group of 18 organisations, including Oxfam, Jubilee Debt Campaign and the Institute for Public Policy Research, who joined us last summer in calling for progressive tax reform post-covid.
Another idea floated toward the end of last year was for a one off wealth tax for millionaire couples. It’s unlikely this government would introduce such a policy, but the fact that think tanks, academics and lawyers agreed such an idea is technically possible has made a lot of people sit up and think.
All these well thought out proposals show that there are options for the government other than slapping a VAT or income tax hike on people who are already struggling to get by.
Increased taxes on wealth are a no brainer electorally too, especially in the so-called “red wall,” where communities are crying out for better public services and investment after years of economic loss.
Tax Justice UK’s own polling and focus groups from last year found significant support for taxes on wealth, with 74% of people wanting to see wealth taxed more, including 64% of Conservative voters and 88% of Labour voters.
We found strong Conservative voter support for increases to capital gains tax and corporation tax. Conservative support for higher corporation tax actually leaped from 61% to 74% between our March and June polls last year.
All of this should make it a political no brainer to close the loopholes that allow wealth to be under-taxed. Those with the broadest shoulders must pay their fair share.
The pandemic has put into stark relief our broken economy. But inequality is entrenched as a consequence of long term political and economic decisions.
If our achievement in turning around this pandemic teaches us anything it is surely that we need to raise the bar on what is achievable in other areas too. We cannot continue with an economic system that fails so many people. Tax justice must be at the heart of any reform package.
This is post is based on a comment piece we wrote for CIty AM this week.
A political row about wealth could be about to kick off over who should bear the cost of funding our public services after Covid.
Experts led by the London School of Economics and Warwick University this week announced a plan that could raise £260bn through a one-off five per cent wealth tax on millionaire couples. The Wealth Tax Commission included economists, lawyers, think tanks and professionals who advise the very wealthy.
The tax would be paid by UK residents with personal wealth above a set threshold. It would include all assets such as main homes and pension pots, as well as business and financial wealth, but minus any debts such as mortgages. It would be paid in instalments over five years, and apply only to wealth above the threshold.
Read more: UK has ‘significant’ ethnic wealth gaps, latest data suggest
Such a tax would not only help fund the Covid recovery. It would show the public that the government is serious about confronting inequality.
We are an incredibly wealthy country with more than£14 trillion in pensions, property and investments. But that wealth is not shared equally.
Inequality is extremely damaging our country. For many, no amount of hard work is enough to overcome this disadvantage. Someone earning £26,000 a year today would have to save every penny, for 96 years, just to reach the wealthiest top 10 per cent, according to the Resolution Foundation.
It’s a matter of racial injustice too. For every £1 owned by a white person in the UK, households of Pakistani descent have around 50p, of those Black Caribbean descent around 20p, and those of Bangladeshi descent have a measly 10p, according to the Runnymede Trust.
And women are hit disproportionately hard too. Out of the £96bn earned in income from wealth in the UK, only 35 per cent goes to women.
These are the warning signs of an economy that is dangerously off-balance. Our economy could be a vehicle to healthy, prosperous and hopeful lives for all. But right now, if you are a middle earner, a woman, or from an ethnic minority, the road ahead is more likely to be blocked.
We need to get back on track. And at this moment, with the economy reeling from the pandemic and fierce debates raging about how to fund it, politicians have the power to change direction.
Whether this government could vote through such a tax in the current political climate is another matter. But make no mistake, changes are afoot. Whatever happens, as we recover from Covid it is right that those with the broadest shoulders bear the heavier load.
And there are other options besides a new tax. Rishi Sunak is considering a plan to make those earning thousands through capital gains pay a fairer rate of tax. There are also rumours he could end the pension tax relief bung that sees higher earners given a bigger incentive to save for old age than people on lower incomes.Our research at Tax Justice UK found that both of these ideas would have significant public support.
When it comes to deciding how we should pay for the economic enormity of the past year, we should remember that the Prime Minister has vocally ruled out a return to austerity and deep public service cuts. Note too that, whatever the traditional political norms, the first Covid lockdown sawConservative voters shift towards support for higher taxes, mirroring wider mood among the general public.
In the past, when there has been a need to raise cash politicians have turned to the nation and announced that “with a heavy heart” they need to put up income tax and VAT.
This time around there are other options on the table. A wealth tax could help ensure that the Covid budget blackhole is funded by those with the most resources to contribute, leading to a less unequal, more just outcome for all.
It may sound radical, but those disadvantaged by our current economic system want politicians to deliver.
The spending review outlined by the Chancellor paints a daunting picture of where the economy is headed in the months ahead.
It is good that Rishi Sunak ignored calls to gut public services. But worryingly he still plans to go ahead with a “cap for carers” and freeze most public sector workers’ pay.
There is no need for more austerity. We can ignore the idea that we are in danger of "maxing out the nation's credit card". The government's own figures show we are on course to pay £20 billion less than expected in debt interest next year.
The impact of the pandemic after 10 years of public spending cuts means that the government needs to go much further if it is going to support communities as we build back from the epidemic. This will require sustained investment.
Lots of uncertainty remains and tax rises are off the agenda for now.
At the point the Chancellor starts to think about tax changes, he needs to protect those who’ve been hit hardest by the pandemic and ensure that those with the broadest shoulders pay their share. That would be fair, and popular.
This is a repost from the Green Alliance Blog by Sara Hall our head of movement and partnerships.
The climate crisis is intensifying and the Covid-19 pandemic has exacerbated existing levels of inequality in the UK. This highlights the urgent need for a just and green recovery and, more specifically, for the tax and climate justice agendas to go hand-in-hand. But we need to get our act together quickly to make sure they do.
Many economists and activists, in the UK and across the world, have been highlighting how tackling inequality should go hand and hand with action on climate justice. Writing for the Sunrise Movement in the US, Nobel prize winning economist Joseph Stiglitz has made a compelling case that reforming tax could be an easy way to raise money for a ‘green new deal’ while increasing economic efficiency. He suggests taxing dirty industries; a broad range of taxes on pollution and financial transactions; closing tax loopholes and ensuring that income from work and wealth is taxed at the same rate. He estimates that all of this would provide trillions of dollars over the next ten years, money that could be spent to fight the climate emergency. Taxes are, of course, just one way of funding the green transition – cheap government borrowing is going to play a central role in funding the investment that’s needed.
A Tax Justice Network paper by Laura Merrill adds to the evidence on taxes, estimating that: “Global revenue gains from the removal of subsidies and the efficient taxation of fossil fuels could be around US$2.8 trillion to governments or equivalent to 3.8 per cent of GDP.” Oxfam has also called for governments to consider wealth taxes, luxury carbon taxes and wider progressive carbon pricing in addition to essential measures to shift energy supply rapidly to sustainable, renewable sources at a fair cost to ordinary people.
There are doubtless lessons the UK could learn from these analyses, and commentators here are beginning to point out that progressive taxation could target the UK’s entrenched wealth inequality, while meeting the country’s climate commitments and delivering a green recovery.
One of the recommendations in the investment section of the recent Reset report by the APPG on the green new deal, in fact, was to rebalance the tax system to tax wealth more. “Bringing taxes on wealth in line with taxes on income”, it suggested, “would help to reduce inequality and underpin increased investment in public services.” A more equitable tax system, in other words, could play a key role in funding the green recovery.
These calls for a better approach to taxation come at a time when we know that tax rises are on the cards. Chancellor Rishi Sunak has hinted they might be needed and the Institute of Fiscal Studies has suggested rises of over £40 billion are “all but inevitable’” in the medium term.
The UK is in a unique position to be bold and ambitious in firmly connecting up the dots between climate and tax justice in the UK: in January it will embark on a new independent trajectory as ‘global Britain’ and will take up the presidency of the G7, as well as hosting the UN COP26 climate summit in Glasgow.
It’s therefore great to see some initial work being done to explicitly connect the tax and climate agendas in the UK. Examples include Green Alliance’s TransformTax project and the work Common Wealth and the New Economics Foundation are doing on redesigning tax for a just, green recovery.
At Tax Justice UK, we are advocating for a fair and effective tax system that benefits everyone. This includes taxing wealth at least at the level of income. Our award-nominated research with Survation and the University of Sheffield found that 74 per cent of people want to see wealth taxed more including, perhaps surprisingly, 64 per cent of Conservative voters. Separate research by Demos and by the LSE and University of Warwick Wealth Tax Commission made similar findings.
But that doesn’t mean it is going to happen: other players in this space are certainly advancing their agendas. For instance, the right wing Centre for Policy Studies recently released a report calling for tax cuts for businesses and share traders, reducing income tax for the highest earners and VAT increases for everyone. And news reports suggest Amazon will pay almost nothing under the new digital services tax while also being part of a panel, described as ‘secretive’, set up by the Cabinet Office to help shape public sector procurement.
Other reports have highlighted that the fossil fuel industry has been meeting UK ministers behind closed doors to discuss the COP26 talks, and it is unlikely they will be arguing to end the subsidies and tax breaks they currently receive. At the same time, in response to the pandemic, it is estimated that G20 countries have used at least $181.43 billion of public money to support fossil fuel companies without any conditionality attached. This public money has taken many forms and includes – but is by no means limited to – tax breaks.
To counter these threats, we believe it is vital that we continue joining up the climate and justice agendas. Next year, as the UK hosts the global climate summit and embarks on a green industrial revolution, is the right time in the UK to advance the case for people and the planet to prosper over corporate profit.
The Tax Justice Network has published a series of papers and a podcast on climate and tax justice and hosting a global conference on 10 and 11 December to discuss how to pay for the climate transition.
News out this week suggests that Amazon will pay almost nothing under the new Digital Services Tax. The government brought in the tax to try and get some revenue out of the internet giants. But the design of the tax means its impact will be limited.
According to news reports, Amazon plans to pass on almost all extra costs to third party sellers on its platform. It’s not just Amazon. Google has also announced that it will also pass on extra costs from the tax to customers.
Amazon’s UK tax bill last year was reportedly £293 million on sales of £13 billion. But it’s currently impossible to know how much tax the company should actually be paying. We need to lift the lid on company accounts to get a clearer picture of how much tax big companies need to pay.
The Digital Services Tax will supposedly bring in £500 million a year. This is a drop in the ocean compared to the amount that the UK loses through tax avoidance.
We’re calling on politicians to reform the way we tax big corporations. We need to end the current system that allows companies to unfairly slash their tax bills. Tinkering around the edge isn't enough. And it doesn't work.
Our partners at the global Tax Justice Network have set out how to comprehensively reform the global corporate tax system. Politicians should take notice.
The public wants action. 84% of people want politicians to close loopholes to stop tax avoidance.
But not all companies behave this way. The Fair Tax Mark is given to businesses that are fair and transparent on tax. There is another way.
The coronavirus lockdown saw Conservative voters shift in favour of higher taxes, according to our new report, “Talking Tax: How to win support for taxing wealth”. The report looks at attitudes on public spending, wealth and tax by Tax Justice UK.
A change in mindset among Conservatives forms part of general public support for higher taxes that we uncovered. The research was done in collaboration with Survation and the University of Sheffield.
In the long run it’s clear that Brits want fair tax rises to support better public services, tackle inequality and deal with the climate emergency. When you talk to people, there is no clamour for tax cuts. The middle of a recession is a bad time for broad brush tax rises, but higher taxes on the rich make sense and are popular.
Polling and focus groups carried out between the 2019 general election and the middle of lockdown also uncovered significant support for taxes on wealth, with 74% of people wanting to see wealth taxed more, including 64% of Conservative voters and 88% of Labour voters.
The proportion of Conservatives who said they were personally prepared to pay more tax to fund services went up from 41% to 46% between March and June. There was also strong Tory voter support for rumoured increases to capital gains, pension tax relief and corporation tax. Conservative support for higher corporation tax leaped from 61% in March to 74% in June.
The findings come as Chancellor, Rishi Sunak, mulls once in a generation changes to the way wealth is taxed ahead of the autumn budget.
Tax Justice UK used 11 focus groups and two major polls to test a number of policies under consideration by Mr Sunak. They include: taxing income from wealth at the same rate as income tax; reducing pension tax giveaways to higher earners and upping corporation tax. All measures were supported by a majority of the public. Conservative voter support for these measures was even higher than that of the general population.
The report also includes a shot across the bows amid speculation the government could cave in to US pressure against taxing digital giants like Amazon and Google.
It finds near universal anger with tax avoidance by corporations and the wealthy with 81% of people saying it is morally wrong for companies to avoid tax and 76% saying the same about tax avoidance by individuals.
The Trump administration is reported to reject a Brexit trade deal unless Boris Johnson drops the UK’s 2% digital sales tax which aims to recoup some of the tax avoided by multinationals.
Tax Justice UK is calling on politicians to finally fix the way we tax big multinationals and not cave in to pressure water down the rules.
Download the full report here.
Download the March polling results here.
Download the June polling results here.
*** The application period has now closed ***
Decolonising Economics, Tax Justice Network and Tax Justice UK want to understand how the UK tax system props up structural racism in this country and its tax havens. This includes the role of UK Overseas Territories and Crown Dependencies. In order to do this, we are commissioning a scoping project to understand what research exists on this subject at the moment and what avenues for future research might look like. We believe that at present there is limited research on the intersection between tax and racial injustice in the UK.
There are many ways in which we already know the tax system and racial injustice intersect including:
We want to work with a researcher to deliver a report covering the following:
This work could involve interviews with stakeholders in academia, activism and financial institutions who can advise on research that is available already or that needs exploration. As part of this process we will bring together a group of economic justice organisers and activists to provide an accountability mechanism for this research so that it supports their campaign strategies and planning. This group would meet once at the set up of the project to input into the scope of research and once more to review the draft report. Taking part in this process should be factored into the working days.
Budget: 20 days work at £300 a day for a total of up to £6,000.
To express your interest in carrying out this piece of work please share your CV and a short half page expression of interest on why you’re interested in the work, how you would carry it out and how your skills and experience will support its success. Please send these to email@example.com by midnight on 7th September.
Download this terms of reference here.